What the ATO really cares about in a tradie audit

The word “audit” strikes fear into most tradies, but the truth is, the ATO isn’t randomly picking people. Audits usually happen because something in your tax return stands out. Understanding what the ATO actually looks for can help you avoid mistakes, stay compliant, and sleep better at night.

Let’s break down the biggest red flags the ATO focuses on when auditing tradies.

Cash jobs and unreported income

One of the biggest triggers for ATO audits is cash income that doesn’t line up with your bank records.

If your reported income looks too low for the type of work you do, or doesn’t match industry benchmarks, it raises red flags. The ATO also cross-checks:

• Bank deposits

• Merchant terminals

• Online booking platforms

• Industry averages

If you’re doing cash jobs, they still need to be declared, otherwise, you risk penalties and interest if you’re audited.

Vehicle and fuel claims

Vehicles are one of the most claimed and most incorrectly claimed deductions by tradies.

The ATO pays close attention to:

• Logbooks that don’t look realistic

• Claiming 100% business use when the vehicle is also used personally

• High fuel and maintenance deductions compared to income

Keeping accurate records and using the correct method (logbook or cents per km) is essential.

Tool and equipment deductions

Claiming tools is allowed, but only when done correctly.

Red flags include:

• Claiming expensive tools as immediate deductions when they should be depreciated

• Claiming tools used partly for personal use

• Claiming items that don’t match your type of trade

The ATO expects claims to make sense for your business.

Subcontractors vs employees

This is a major audit focus for the ATO.

If you pay workers but treat them as contractors when they legally qualify as employees, you could owe:

• Superannuation

• PAYG withholding

• Penalties and interest

The ATO checks who controls the work, who provides tools, and how workers are paid.

GST and BAS errors

Incorrect GST reporting is another common audit trigger.

The ATO looks for:

• GST claimed on personal expenses

• Missing GST on invoices

• BAS figures that don’t align with income

Small mistakes over time can add up to big problems.

Bottom line

The ATO isn’t trying to trap tradies, but they do expect your numbers to make sense. By declaring all income, keeping good records, using correct logbooks, and treating workers properly, you dramatically reduce your audit risk.

Good bookkeeping isn’t just about tax, it’s about protecting your business.

Join our Bookkeeping Series to put simple systems in place, and don't be afraid of the ATO again.